Consumer Insights Luxury FH V4 150612 - uni-muenchen.de · ranking of the Top 50 German luxury companies was created. i. e. 7 No. of points of sales (POS) ... Gucci 6,420 5 Prada

Confidential

Ludwig Maximilians-Universität

21 June 2012

Consumer InsightsUsing the example of luxury productsConsumer InsightsUsing the example of luxury products

“The real luxury is not to look at the price.”Karl Lagerfeld

Confidential – all rights reserved – Ernst & Young 2012 Consumer Insights 1

Today we will look at luxury consumers to generate some insights

Mind the gap

Luxury is different

Confidential – all rights reserved – Ernst & Young 2012 Consumer Insights

Non-branded luxury

Today we will look at luxury consumers to generate some insights

Then we will see that luxury is in the eye of the beholder...

Luxury is different First, we will check some cultural differences:La Grande Nation vs. Made in Germany

2

branded luxury …and how this insight leads to a totally new type of luxury products.


Luxury is different

3

We want to start with the classic marketing mix framework…

Marketing is essential for companies to create a competitive advantage and influence consumer behaviour

Consumer behaviourPrice

Product

1

2


Product

Place

Promotion

+Emotion

3

4

5

We want to start with the classic marketing mix framework…

Marketing is essential for companies to create a competitive advantage and influence consumer

Competitor 1

4

Competitor 2

Competitor 3

…and check how luxury fits right in there

Revaluation

► Luxury product lines can increase the attractiveness of the company‘s core products (e. g. Daimler)

International

► Luxury products address international clientele and make the brand wellbeyond borders, e. g. Porsche is a worldwide synonym for German luxury cars

6 reasons why companies play in the luxury segment

1 2


German luxury cars

► In the automotive industry luxury product lines are often used as development carrier for technical equipments. Later on these equipments become standard equipment in other car models

Pride

► The chance for celebrity clients can be a reason for a luxury product line. Roman for example has ordered a yacht at Blohm + Voss Shipyards. Originally, Blohmbeen building naval vessels

2Research & Development

…and check how luxury fits right in there

Luxury products address international clientele and make the brand well-known beyond borders, e. g. Porsche is a worldwide synonym for German luxury cars

► The more exclusive the luxury product is, the less own marke-ting/PR is necessary. Companies are contacted by renowned magazines asking for permission to image their products (for

6 reasons why companies play in the luxury segment

3 4 4PR/Marketing

5

German luxury cars to image their products (for example Gaggenau)

The chance for celebrity clients can be a reason for a luxury product line. Roman Abramovichfor example has ordered a yacht

+ Voss Shipyards. Blohm + Voss has

been building naval vessels

Specific passion

► Making a luxury product can also be a specific passion of the manufacturer as in case of Gumpert Sportwagen-manufaktur

5 5

261

Split by production type

In Germany a broad range of industry segments is playing on luxury…

German luxury companies are engineering and handicraft affine: “

15

8

Split industrial segmentation

29 100

A B

Confidential – all rights reserved – Ernst & Young 2012

Industrial production

Manufactures

Services

Consumer Insights

15

7

Engineering/handicraft

Core segments

Other new segments

29 100

►►► “Made in Germany” is internationally still recognized as seal of quality

18

9

657

Industry segments with luxury products B2C (without services)

1

Split by production type

In Germany a broad range of industry segments is playing on luxury…

German luxury companies are engineering and handicraft affine: “Ingenieursland Deutschland”

100

C

100

6

65

5

57

Fashion Furniture

Automotive Watches

Accessories Other

73

Industrial production

Manufactures

100 100

“Made in Germany” is internationally still recognized as seal of quality

…which sets us apart from the classic “luxury segment” definition…

We have identified 177 German luxury companies in 29 industrial segments…

YachtsAerospace

Chinaware

Optical instruments

Cutlery

CarpetsHousehold appliances

Toys

Lamps

…

…for which we have gathered financial data, revenue and employee numbers and other hard facts like year of foundation.

For an selection of 98 we have collected further information on


ChampagneExpensive cars

Fashion & AccessoriesPerfumes & Cosmetics

JewelryWatchesFurniture

OOptical instruments Consumer

electronicsHotels

Stationary ►►

►

Besides the hard facts, an external expert jury has also assigned marks on certain soft facts. Thus, a ranking of the Top 50 German luxury companies was created.

…which sets us apart from the classic “luxury segment” definition…

We have identified 177 German luxury companies in 29 industrial segments…

…for which we have gathered financial data, i. e. revenue and employee numbers and other hard facts like year of foundation.

For an selection of 98 we have collected further information on

7

► No. of points of sales (POS)► Media features (number of press articles

mentioning the brand name)► Price multiple compared to a comparable no

name product that is as cheap as possible

Besides the hard facts, an external expert jury has also assigned marks on certain soft facts. Thus, a ranking of the Top 50 German luxury companies was created.

…and deliver some surprising names in our ranking

Here are the results

No Company Segment 17 C. Bechstein

1 Montblanc Stationary 18 Tamara Comolli

2 Burmester Consumer electronics 19 Bulthaup

3 Leica Camera Optical instruments 20 Chronoswiss

4 Büttenpapierfabrik Gmund

Paper 21 Jan Kath


5 A. Lange & Söhne Watches 22 THONET

6 Porsche Automotive 23 Miele

7 WALTER KNOLL Furniture 24 Dorothee Schumacher

8 Steiff Toys 25 Glashütte

9 Graf von Faber-Castell

Stationary 26 Rolf Benz

10 JIL SANDER Fashion 27 Daimler

11 DEDON Fashion 28 Robbe & Berking

12 Wiesmann Automotive 29 GUMPERT

13 Gaggenau Household appliances 30 T+A elektroakustik

14 Roeckl Accessories 31 Wilhelm Schimmel

15 Meissen Chinaware 32 Rena Lange

16 Nymphenburg Chinaware 33 St. Emile

…and deliver some surprising names in our

Musical instruments 34 Comtesse Accessories

Jewelry 35 Tobias Grau Lamps

Kitchens 36 TECNOLUMEN Lamps

Watches 37 Hugo Boss Fashion

Carpets 38 MYKITA Glasses

8

Furniture 39 Dornbracht Valves

Household appliances 40 Kempinski Hotels

Dorothee Schumacher Fashion 41 Sinn Spezialuhren Watches

Watches 42 Strenesse Fashion

Furniture 43 Iris von Arnim Fashion

Automotive 44 Interlübke Furniture

Cutlery 45 ESCADA Furniture

Automotive 46 Poggenpohl Kitchens

Consumer electronics 47 BREE Accessories

Musical instruments 48 RIMOWA Accessories

Fashion 49 Koch und Bergfeld Cutlery

Fashion 50 van Laack Fashion

Why is the right bag ~3.5 x more expensive?

Higher quality? Brand? Design? … Which one would you buy?

BREE


Material: genuine leatherSize: 36 x 28 x 9 cmPrice: 489 EUR

Why is the right bag ~3.5 x more expensive?

Higher quality? Brand? Design? … Which one would you buy?

Louis Vuitton

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Material: genuine leatherSize: 34 x 28 x 16 cmPrice: 1,690 EUR

Because people buy more than a product!

Why people buy luxury products/brands

► Love to afford expensive goods (“macht das Leben

► Like going into exclusive shops

► Be surrounded by beautiful things

► Want to have a certain image

1

2

3

4


► Want and trust in best quality promise

► High standard even in everyday’s life products

5

6

Because people buy more than a product!

Leben schöner”)

34,638,3

25,5

28,1

30,2

32,9 1

2

51 – 60 year old 21 – 30 year old

NA

in %, share of age group

10

38,3

47,2

37,4

41,7

54,5

43

39,9

46,4

26,3

56,5

43,3

52,6

31,4

60 3

4

5

6

2011 2008

NA

Source: Roland Berger 2012 Luxury Study

LVMH has realized that…

Admiration

Reward

Image

I am worthy it

Enjoyment


Brand

DesignFeel good

Image

...

Prestige

Emotion

LVMH has realized that…

Fascination

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LVMH

Trust (in quality)

Status symbol

…and concentrates on the 4 segments where this can be done more easily

LVMH is a French luxury group that comprises many well

LVMH defines its mission to “represent the most refined qualities of Western "Art de Vivre" around the world” in the following categories:


► Wines & Spirits

► Fashion & Leather Goods

► Perfumes & Cosmetics

► Watches & Jewelry

…and concentrates on the 4 segments where this can be done more easily

LVMH is a French luxury group that comprises many well-known luxury brands.

12

On the contrary German luxury companies have decided to play more on the “hard facts”

That’s why Germany is rather well-known for luxury cars and watches than for perfumes and fashion

+

Cutlery

Household appliancesBikes Optical instruments

ShipbuildingAircrafts


-

Ratio

nal

CutleryFurniture

Paper

5 6+

On the contrary German luxury companies have decided to play more on the “hard facts”

known for luxury cars and watches than for perfumes and fashion

Cars

Consumer electronics

Cutlery

Household appliances

WatchesOptical instruments

Shipbuilding

13

+Emotional

FashionAccessories

Wine

PerfumeCosmetics

Consumer electronics

Hotels

Cutlery

CarpetsJewelry

Bathroom fittings

LampsPens

Chinaware

Musical instruments

ToysShoes

LVMH’s segment

1 4-

Confidential – all rights reserved – Ernst & Young 2012 Consumer Insights 14

Mind the gap

When buying luxury products the buyer can be emotionally torn…

Buyer’s perception

+


-

When buying luxury products the buyer can be emotionally torn…

Public perception

+

15

-

…if the brand is not established as “positive brand” in the public perception

Buyer’s perception

+


-

…if the brand is not established as “positive brand” in the public perception

Public perception

+

16

-

Therefore people love luxury if they can answer the following questions with “yes”

► Does possession create admiration?

► Is the product bought because of beauty, status, effect or similar reasons?

► Is the product bought to keep it and hand it down?

► Is buying the product rather emotionally driven?


► Is buying the product rather emotionally driven?

► Is the product fascinating/enchanting?

Therefore people love luxury if they can answer the following questions with “yes”

Does possession create admiration?

Is the product bought because of beauty, status, effect or similar reasons?

Is the product bought to keep it and hand it down?

Is buying the product rather emotionally driven?

17

Is buying the product rather emotionally driven?

Is the product fascinating/enchanting?

How do luxury companies ensure that their products are perceived as “positive luxury”?

Which brand is it?


How do luxury companies ensure that their products are perceived as “positive luxury”?

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They let their products look less luxury

Simultaneously, brands loose a bit of “uniqueness”, they are hard to distinguish without brand label


Hugo Boss Hilfiger Louis Vuitton

They let their products look less luxury

Simultaneously, brands loose a bit of “uniqueness”, they are hard to distinguish without brand label

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Jil Sander Armani Strenesse

Do not move for 3 days (and nights) to keep your chance of buying a pair of Nike Air

Precondition:

1. Be on the waiting list

2. Wait for a preset time at a specified place on the street that Nike defines

3. Be there when someone comes around to check if you are still

Sometimes reward is taken


► Designed by Kanye West

► Limited to 200 pairs worldwide

► Price EUR 260

► Sold on ebay for USD 90,300

“It’s a pain – but it is fun. The thrill if you get a pair is an additional appeal.”Participant of the Hamburg event

►►►

3. Be there when someone comes around to check if you are still there (every 2

Nike has been keeping alive the interest on this second edition of Nike Air Yeezy sneakers by only using social media channels.

Do not move for 3 days (and nights) to keep your chance of buying a pair of Nike Air Yeezy 2

Be on the waiting list

Wait for a preset time at a specified place on the street that

Be there when someone comes around to check if you are still

Sometimes reward is taken literally

20

but it is fun. The thrill if you get a pair is an additional appeal.”Participant of the Hamburg event

Be there when someone comes around to check if you are still there (every 2 - 4 hours). Otherwise your chance is gone…

Nike has been keeping alive the interest on this second edition of sneakers by only using social media channels.


Non-branded luxury

21

Classic rankings are always based on some kind of brand value

Looking at classic rankings global branded luxury seems to be the only way to come to the top

Brand Brand Value $M

Brand Contribution

Louis Vuitton 25,920 5

Hermès 19,161 5

MillwardBrown Top 10 Luxury Brands 2012


Hermès 19,161 5

Rolex 7,171 5

Chanel 6,677 5

Gucci 6,420 5

Prada 5,788 5

Cartier 4,843 5

Hennessy 4,596 5

Moët & Chandon 4,217 5

Burberry 4,090 4

Brand Contribution measures the role brand plays in driving earnings on a scale of 1 to 5 (highest)

Classic rankings are always based on some kind of brand value

Looking at classic rankings global branded luxury seems to be the only way to come to the top

Brand Value Change

7%

61% 25

30

35

Purchasing luxury products: extremely/very important in your personal life

22

61%

36%

-2%

-14%

NA

-9%

-8%

-8%

21%

Brand Contribution measures the role brand plays in driving earnings on a scale of 1 to 5 (highest)

0

5

10

15

20

% w

ho a

gree

2010 2011

Also in valuation brands are in focus

Price premium

Valuation methodology for brands


Market pricecore benefit

Market priceadded value

Price premiumbrand

Total price

Fair Value-Oriented Cost-Oriented

► Direct cash flows► Excess profits► Analogy to price for concession► Residual value

► Reproduction costs

► Replacement costs

Value = Discounted cash flow Value = Costs

Also in valuation brands are in focus

Quantity premium

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Required quantity

Additional quantity marketing

Quantity premium brand

Total quantity

Fair Market Value-Oriented

► Active market

► Analogies

Reproduction costs

Replacement costs

Value = Multiple

Finally, also studies proof the power of brands

468

101214

Our latest study* seems to proof that, especially during the Crisis, luxury companies achieve higher multiples during transactions. We have noticed five recurring models:

Enterprise Value/EBITDA (median)

1 Expanding in emerging markets

As the number of middle class and the high net worth individuals increase in the emerging economies,


024

2007 2008 2009 2010 2011

Luxury & Cosmetics Consumer goods

* „Luxury & Cosmetics – The Ernst & Young Financial Factbook“ – Winter 2010/2011 edition

3 4Brand stretching Brand acquisition

increase in the emerging economies, notably in Asia and Latin America, so too does the appetite for luxury goods.

Groups have also seized opportunities to reinforce their portfolio of brands in order to complete their portfolio of offerings, such as L’Oreal’s acquisition of Yves Saint-Laurent fragrances.

Some luxury players have been able to take their brands into new domains, new businesses, such as Armani’s entry into the hotel business in Dubai.

Finally, also studies proof the power of brands

Our latest study* seems to proof that, especially during the Crisis, luxury companies achieve higher multiples during transactions. We have noticed five recurring models:

2Expanding in emerging Brand strengthening

As the number of middle class and the high net worth individuals increase in the emerging economies,

Rather than risk compromising their brands’ image by slashing prices or cutting quality, some companies

24

Winter 2010/2011 edition

Brand acquisition 5 E-commerce/e-luxury

increase in the emerging economies, notably in Asia and Latin America, so too does the appetite for luxury

cutting quality, some companies developed new products (notably accessories) with more accessible price points to enlarge their customer base.

Groups have also seized opportunities to reinforce their portfolio of brands in order to complete their portfolio of offerings, such as L’Oreal’s acquisition of Yves

Laurent fragrances.

The same Internet that some analysts once predicted would be the death of luxury goods is now turning out to be an important way to enhance brand identity and increase revenues.

…especially if you are from Gen Y. Companies mainly use social networks for 3 things:

The perception gap

Discount Learn about new products

Consumers’ ranking Businesses’ ranking

Confident

But things may change as social media as “new” marketing channel is gaining importance…

1 2Individualization is easier Minimize product distance


Purchase

Discount

Purchase

productsGeneral info

Feel connected

Feel connected

Be part of a community

Be part of a community

Source: IBM Institute for Business Value

Higher education

What’s in for me

…especially if you are from Gen Y. Companies mainly use social networks for 3 things:

Self-expres-

sive

Liberal

But things may change as social media as “new” marketing channel is gaining importance…

3Minimize product distance 1:1 marketing

25

Upbeat

Open for

change

Use of techno-

logy

Gen Y

Now

…and enables companies to use other levers to generate luxury

Often several levers are combined in a luxury product

Price

► A high price multiple is one possibility to make your product a luxury product as it only a certain clientele is addressed, e. g. Lange Uhren

Limited edition

► Producing a product in a predefined number, e. g. 333 exemplars of the Sakura or Skeleton series


Design/function

► A unique design combined with “normal” functions can turn a product into a luxury product, e.g. THONET furniture

Special material

► Precious drapery or an apartment key made of gold and diamonds let a product become luxury. For example, Jan Kath carpets are made of handwool from Tibetan highlands

…and enables companies to use other levers to generate luxury

Often several levers are combined in a luxury product

Limited edition

Producing a product in a predefined number, e. g. 333 exemplars of the MontblancSakura or Skeleton series

Exclusive distribution

► A luxury product can also be formed by exclusive distribution channels, e.g. only authorized specialist dealers as it is the case for Glashütte Uhren

26

Special material

Precious drapery or an apartment key made of gold and diamonds let a product become luxury. For example, Jan Kath carpets are made of hand-spun wool from Tibetan highlands

Persistence/sustainability

► Of course, luxury products have to meet the high quality expectations of its customers. That’s why they are processed in high-quality and – at best –recyclable like DEDON outdoor furniture

Some examples of non


Some examples of non-branded luxury

27

Thank you


Thank youThank you

28

Thank you

Ernst & Young

Assurance | Tax | Transactions | Advisory

© 2012 Ernst & Young - all rights reserved.

The global Ernst & Young organization refers to all

Florian Huber

Tel +49 89 14331 14882Mob +49 160 939 14882Email [email protected]


The global Ernst & Young organization refers to all member firms of Ernst & Young Global Limited (EYG). Each EYG member firm is a separate legal entity and has no liability for another such entity’s acts or omissions. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

+49 89 14331 14882+49 160 939 [email protected]

Christian Leu

Tel +49 89 14331 14804Mob +49 160 939 14804Email [email protected]

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Consumer Insights Luxury FH V4 150612 - uni-muenchen.de · ranking of the Top 50 German luxury companies was created. i. e. 7 No. of points of sales (POS) ... Gucci 6,420 5 Prada